Form 1116 Line 1
Cashed out an RRSP and CRA withheld 25% tax. Line 16a on 1040 is $47,000; line 16 b taxable amount is $11,200. My question...what amount would go on Form 1116, Line 1a? It refers to "gross income from sources within country" which would generally be the $47K. The taxable net is the $11+K but even reading the instructions, I can't figure out which amount to include on Line 1.
Would appreciate any help? Thanks
RRSP Cashed Out-Form 1116 Credit
Moderator: Mark T Serbinski CA CPA
The term "gross amount" on 1116 has nothing to do with the "gross/taxable" ammount for your RRSP.
You would put 11,200 on 1116 (general limit), and let the software do the rest. Include the entire $11,750 as NR tax.
If you do use $47,000, then you must immediately deduct 35,800 at line 2, so there is no point putting anything other than $11,200
As you see, your credit is much less than what you paid in canada, as it should be.
Can I ask how you came up with your taxable amount, just to be sure?
You would put 11,200 on 1116 (general limit), and let the software do the rest. Include the entire $11,750 as NR tax.
If you do use $47,000, then you must immediately deduct 35,800 at line 2, so there is no point putting anything other than $11,200
As you see, your credit is much less than what you paid in canada, as it should be.
Can I ask how you came up with your taxable amount, just to be sure?
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Cashed out RRSP Form 1116
As I suspected but wanted to confirm. When I included gross for Line 1 1116, the foreign tax credit seemed much too generous. It would probably be more advantageous to take the tax as a deduction.
Re the taxable amount, when I became US resident in 2006, value of RRSP in CDN was $42, 054 which (sadly) converted to $36,344 US. Cashed out CDN value in 2012 was $47, 955 converted to $47, 864 US so I figured gain is precisely $11520.
Have filed 8891's in the past.
Does this sound correct ?
btw...I have been reading these posts for a few months now and information is absolutely invaluable. This is my first post. US tax code is awful. Thank you so much.
Re the taxable amount, when I became US resident in 2006, value of RRSP in CDN was $42, 054 which (sadly) converted to $36,344 US. Cashed out CDN value in 2012 was $47, 955 converted to $47, 864 US so I figured gain is precisely $11520.
Have filed 8891's in the past.
Does this sound correct ?
btw...I have been reading these posts for a few months now and information is absolutely invaluable. This is my first post. US tax code is awful. Thank you so much.
Sounds about right.
What made you collapse it now? I generally advise collapsing/withdrawing a regular RRSP (not a LIRA) only in the following 3 scenarios:
1. As soon as you break Cdn residency
2. in years when you can reduce the NR tax by section 217 (ie. when not working).
3. By converting to a RRIF (which can be done at any age) and taking 10% of the RRIF every year at 15% NR tax.
What made you collapse it now? I generally advise collapsing/withdrawing a regular RRSP (not a LIRA) only in the following 3 scenarios:
1. As soon as you break Cdn residency
2. in years when you can reduce the NR tax by section 217 (ie. when not working).
3. By converting to a RRIF (which can be done at any age) and taking 10% of the RRIF every year at 15% NR tax.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Cashed out RRSP Form 1116 Line 1
Your points are well-taken, especially since I just ran the numbers through Tax Act and am entitled to a whopping $1868 foreign tax credit even though CRA withheld $11,989. Taking as a deduction was not significantly better.
Initially I did not collapse when CDN residency ended as I am on a TN Visa and erroneously believed that I needed to maintain "ties" to CA. This should not have been one of them....
And just decided to collapse this year as I bought a house in US (which I love) and frankly needed the cash, despite the low interest rates. I really don't regret it, but it's not for everyone.
Initially I did not collapse when CDN residency ended as I am on a TN Visa and erroneously believed that I needed to maintain "ties" to CA. This should not have been one of them....
And just decided to collapse this year as I bought a house in US (which I love) and frankly needed the cash, despite the low interest rates. I really don't regret it, but it's not for everyone.
Too bad. Considering that you are paying 25% to Canada, another 5% to IRS, and probably some to your state, that was a pretty big chunk to take out. The extra 30K in mortgae would not be as expensive.
as to credit vs deduction, I almost always suggest the credit (unless the collapse is made in the first months of US taxation), since you never know when you might generate some untaxed foreign-sourced income.
My favorite is taking a course in Canada for my job. The work days spent in canada can be used to proarte your annual wages as foreign sourced, and you get a nice tax credit if you have some unused FTC from past years.
as to credit vs deduction, I almost always suggest the credit (unless the collapse is made in the first months of US taxation), since you never know when you might generate some untaxed foreign-sourced income.
My favorite is taking a course in Canada for my job. The work days spent in canada can be used to proarte your annual wages as foreign sourced, and you get a nice tax credit if you have some unused FTC from past years.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Yes, you can carry forward 10 years. I assume that is a Cdn pension.
At what rate was it withheld in Canada? Since it is 100% taxable in US, it'll have a larger credit, but still hard to get it up to 25%. I hopw it was withheld at 15% in Canada.
At what rate was it withheld in Canada? Since it is 100% taxable in US, it'll have a larger credit, but still hard to get it up to 25%. I hopw it was withheld at 15% in Canada.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
.. oh and just while we are on the topic, you don't get to use the carryforward unless you have nothing left from the year in question.
So, say you have a carryforwrd of 10K from 2012. In 2013, you have Cdn tax on $1000, and your ftc calculates a maximum $900. you must use the $1000 from 2013, you don't get to use the oldest portion first, unless you use up all of that year's first. In theabove example, your credit would need to be, say, $1500, then you would use the $1000 from 2013, and $500 from your 2012 carryforwrd, and still have $9500 left from 2012.
Basically to use up past tax credits you need to have very low taxed or untaxed Cdn income (like untaxed wages earned while in Canada, income taxed at lower 217 rate) of the same category (general limit).
So, say you have a carryforwrd of 10K from 2012. In 2013, you have Cdn tax on $1000, and your ftc calculates a maximum $900. you must use the $1000 from 2013, you don't get to use the oldest portion first, unless you use up all of that year's first. In theabove example, your credit would need to be, say, $1500, then you would use the $1000 from 2013, and $500 from your 2012 carryforwrd, and still have $9500 left from 2012.
Basically to use up past tax credits you need to have very low taxed or untaxed Cdn income (like untaxed wages earned while in Canada, income taxed at lower 217 rate) of the same category (general limit).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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livcyxingfoe
- Posts: 3
- Joined: Tue Mar 12, 2013 4:09 am
That is correct. You must have foreign source income of the same category
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